By Barry Rascovar
March 23, 2015 — Once again, the House of Delegate took the easy way out of its budget bind — and in the process stuck it to future state workers, teachers and taxpayers.
The Senate is on a glide path that follows that same flawed approach.
Instead of facing up to its fiduciary pension obligations, Annapolis delegates opted to play games, placing at risk the safety of state retirement programs.
In the process, the delegates are leaving the next generation of taxpayers a monster-sized unpaid pension bill totaling in the billions.
If Maryland loses its prestigious triple-A bond rating, you’ll know who to blame.
Thanks to the intellectually dishonest proposal by the Department of Legislative Services, the delegates found a way to save $75 million this year to pay for K-12 education and a salary increase for state employees — if the governor goes along with those suggestions.
How It Started
Back in 2011, the state agreed to supplement its annual pension contribution by $300 million a year. This was the quid pro quo for forcing state employees and teachers to contribute more out of their own paychecks to the pension program.
But lawmakers reneged on the bargain, eventually cutting their supplemental payments to $150 million a year — or to zero when times got tough.
Now the House wants to reduce the state’s supplemental payment to just $75 million each year — a far cry from the original $300 million commitment. Meanwhile, state employees and teachers get no relief in their enlarged pension payments.
A major part of the rationale for this irresponsible move by lawmakers is the fast-rising value of the retirement agency’s stock portfolio. Last June 30, the state pension program topped $45.4 billion — a rise of $5.2 billion in just one year.
Its investment return for the fiscal year was a strong 14.4 percent. Fund managers have exceeded their target of 7.7% growth in four of the past five years.
Roller Coaster Ride
Sounds wonderful, doesn’t it?
It certainly entranced the legislature’s budget analysts, who cited the stock market rise as a key factor in recommending that the state slash its supplement payments by 75 percent.
But a funny thing is happening on Wall Street.
In the first 75 days of 2015, stocks ran out of gas. The long rally stalled. Prices are about where they were on Jan. 1.
If Wall Street’s prices fail to rise, or even fall, for the rest of this year, Maryland’s pension managers won’t come anywhere near their 7.7 percent growth target.
The retirement agency’s unfunded liabilities could jump substantially — and the heat will be on state legislators and the governor next year to make up the difference.
That’s why the legislature’s quest for immediate gratification is so misguided. This is not the time to monkey around with reduced pension contributions.
When the bulls rule Wall Street, Maryland politicians start thinking they can cut back on the state’s pension appropriations. But that ignores the inevitability of the economic roller coaster. Prosperity only lasts so long.
If lawmakers don’t prepare for the lean years they will put Maryland’s pension program — already nearly $20 billion in the hole — in an even worse bind.